EconPapers    
Economics at your fingertips  
 

Capital goods trade and economic development

Michael Sposi (), B Ravikumar and Piyusha Mutreja ()

No 1374, 2014 Meeting Papers from Society for Economic Dynamics

Abstract: Almost 80 percent of capital goods production in the world is concentrated in 9 countries. Poor countries import most of their capital goods. We argue that international trade in capital goods has quantitatively important effects on economic development through two channels: (i) capital formation and (ii) aggregate TFP. We embed a multi-country, multi-sector Ricardian model of trade into a neoclassical growth framework. Barriers to trade result in a misallocation of factors both within and across countries. We calibrate the model to bilateral trade flows, prices, and income per worker. Our model matches the world distribution of capital goods production and accounts for almost all of the log variance in capital per worker across countries. Trade barriers in our model imply that poor countries produce too much capital goods, while rich countries produce too little, relative to the optimal allocation. The cross-country income differences fall by over 50 percent when distortions to capital goods trade are removed. Autarky in capital goods results in a 6 percent reduction in world GDP, with all of the loss stemming from decreased capital accumulation.

Date: 2014
References: Add references at CitEc
Citations: View citations in EconPapers (6) Track citations by RSS feed

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
Working Paper: Capital goods trade and economic development (2014) Downloads
Working Paper: Capital goods trade and economic development (2014) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:red:sed014:1374

Access Statistics for this paper

More papers in 2014 Meeting Papers from Society for Economic Dynamics Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA. Contact information at EDIRC.
Bibliographic data for series maintained by Christian Zimmermann ().

 
Page updated 2021-10-22
Handle: RePEc:red:sed014:1374